Analysis and criticism of America's most prominent public intellectual and champion of Keynesian economics. I am part of the Austrian School of Economics, and I critique Krugman's writings from that perspective.

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Wednesday, October 31, 2012

OK, Paul Krugman has not claimed that Hurricane Sandy will make us rich or revive the economy, but at least one other mainstream economist has done something of that sort. Peter Morici, an economist at the University of Maryland, has written that disasters such as Sandy ultimately might prove net economic benefits because of all the cleanup and construction (or re-construction) work that follows.

The ultimate example of broken-window lunacy comes from Nobel
Prize-winning economist Paul Krugman. On September 14, 2001,
Krugman used his New York Times column to lecture Big
Apple residents about the upside of
the utter destruction of the World Trade Center and a good
chunk of lower Manhattan just a few days earlier: "Now, all of a
sudden, we need some new office buildings...the destruction isn't
big compared with the economy, but rebuilding will generate at
least some increase in business spending."

Hey, economies are nothing more than spending, right? Just print, borrow, and spend and we'll all get rich, even if we throw a hurricane into the mix.

If anyone is wondering, we got hit with a blizzard of heavy, wet snow that snapped trees and power lines. We have been without power since Monday evening and, unlike Paul Krugman, we do not have a generator (which means we have no running water). Life has been interesting but hardly tragic. I now understand why the Amish tend to go to bed early.

I have included a couple of photos of our place to put this whole storm into perspective. Yes, that is our van on the right.

Sunday, October 28, 2012

In a recent blog post, Paul Krugman has labeled what Robert Higgs has called "Regime Uncertainty" nothing less than a "scam." Now, when speaking of research by another economist, especially an economist like Higgs who has developed a good reputation over the years, "scam" is a fighting word, so one would think that Krugman would do more than just write another partisan screed, especially since he is a decorated academic economist.

Premise#1: "Regime Uncertainty" has no effect, since business investors only want to know if the economy will be strong before they invest;

Premise #2: Everyone knows that if the government spends a lot of money via printing and borrowing, the economy automatically will be strong;

Conclusion: Since Republicans have not supported everything President Obama has done, they are responsible for creating "uncertainty," even though "uncertainty" really has no effect. But we should blame Republicans, anyway, because they don't support Obama's Jobs Act, which everyone knows would bring back prosperity because Krugman says so.

Monday, October 22, 2012

Wow, just in time! The election is two weeks away and finally -- FINALLY! -- the U.S. economy is doing great. Don't take my word for it, take Paul Krugman's:

The U.S. economy finally seems to be recovering in earnest, with housing
on the rebound and job creation outpacing growth in the working-age
population. But the news is good, not great — it will still take years
to restore full employment — and it has been a very long time coming.

Of course, the reason we are not absolutely booming is because of "Republican scorched-earth politics," except for the fact that the Democrats had an absolute majority in the Senate and huge majority in the House, and no Republican in sight to do anything but weep. Yet, even with that filibuster-proof majority, the Obama stimulus "was both too small and too short-lived."

Yes, Goldstein blocked everything, despite the fact that even Goldstein was neutered for two years.

Friday, October 19, 2012

Thirty years ago, I saw a local TV debate in Chattanooga between the late William H. Peterson and a Marxist professor at the University of Tennessee-Chattanooga, Phillip Giffin. Peterson had just returned from a trip to Romania, which then was living in the era of the execrable Nicolae Ceaușescu, and spoke about the poverty and misery he observed.

"But," interrupted Giffin, "There's no unemployment there."

Indeed, that is the mentality of much of the economics profession, or at least the left side of the profession, including Krugman. (No, Krugman is not a Marxist, but his Keynesian analysis is built upon many of the same foundations Marx used, including the overproduction/underconsumption paradigm.) So, I see once again that Krugman is killing trees this week to once again preach that if Barack Obama is elected, he will "create more jobs" than will Mitt Romney.

Notice that this really has nothing to do with economics per se. The Romanian regime "created jobs," although in reality, many jobs were nearly useless and the vast majority or Romanians lived in grinding poverty. Yet, we continue to hear the "creating jobs" arguments given by economists who should know better.

For most people, a job carries a transmission of income, which is why we obviously think about our jobs. However, if one thinks that a job's only use is that of an income transmitter, then one clearly does not understand employment. After all, the government could mail everyone checks for whatever amount a job would pay, and that would substitute for the income transmission.

Obviously, there would be a problem if everyone stayed home and just received a check, and it would become abundantly clear that a job is NOT just a means of providing income, but jobs also are the mechanism through which we have labor services throughout the economy, and without those service, there IS no economy. At one level, I am sure that even Paul Krugman would understand that point, but it also is clear to me that he seems to think that the importance of work really is in the income that individuals receive, and not the wealth creation itself that a job can help achieve.

For example, when interviewed about the Keystone Pipeline that Obama blocked, Krugman approved the president's actions, using environmental criteria. (Note that Krugman also praises the building of wind farms, which have their own negative environmental effects and, unlike Keystone, stay alive only through massive subsidies, tax breaks, and government requirements that electric utilities purchase power from those farms, so if one thinks that Krugman is being selective in his environmental concern, one might be correct.)

However, after announcing his opposition to Keystone, Obama then declared that increased government payments to the unemployed would have a more powerful and important economic effect than the building of an oil pipeline, and I do not recall reading a word of criticism from Krugman about that statement. Keep in mind that what Obama is saying is that essentially borrowing or printing money creates more wealth than does the application of capital in moving resources from lower-valued uses to higher-valued uses. This is stunning, for it demonstrates just how economically-illiterate Obama really is, and it also exposes people like Krugman who apparently can see no difference in printing money and creating wealth or, even worse, seem to believe that printing money actually creates wealth.

In his latest column, Krugman accuses Mitt Romney of snowing voters on jobs, asking: "But does he have a plan to create any?" That is not the right question. Instead, Krugman should be asking whether or not Romney -- or Obama, for that matter -- have any "plans" to encourage capital formation, and to let entrepreneurs and entrepreneurial firms move resources from lower-valued to higher-valued uses. Krugman's claim that Obama's record can be defended, yet Obama has done almost nothing to encourage the things I have mentioned.

(I forgot. Like Obama, Krugman believes that government can print, borrow, and subsidize an economy into a real recovery. In the end, the "plan" is called by another name: inflation.)

And what is a Paul Krugman column without at least one real howler? How about this?

Just for the record, one study concluded that America might gain two million jobs if China stopped infringing on U.S. patents and other intellectual property; this would be nice, but Mr. Romney hasn’t proposed anything that would bring about that outcome. Another study suggested that growth in the energy sector might add three million jobs in the next few years — but these were predicted gains under current policy, that is, they would happen no matter who wins the election, not as a consequence of the Romney plan.

Notice that there is no cost assumed to enforcing the intellectual property laws, and I don't know how one can extrapolate the kind of wealth creation needed for two million new jobs by the use of increased police powers, but when one is spouting rhetoric, careful thought need not intervene. Furthermore, the only significant wealth-producing portion of the energy sector is in fossil fuels, and Krugman already is on the record as saying those are evil and should be abandoned altogether. As for "creating jobs" through subsidies, apparently Krugman cannot understand that subsidies ultimately must come from those sectors of the economy that are profitable, which means that jobs are lost elsewhere.

Oh, I forgot. Being a Keynesian means that one believes government can do away with the Law of Scarcity and the Law of Opportunity Cost by fiat and with a printing press.

Some years down the pike, we're going to get the real solution, which is
going to be a combination of death panels and sales taxes. It's going
to be that we're actually going to take Medicare under control, and
we're going to have to get some additional revenue, probably from a VAT.

So, given Krugman's previous statements (which he made but didn't make), he now accuses Mitt Romney and Paul Ryan of wanting to let people die in order to "save money." However, RR are even more sinister than just pure "death panels" advocates:

The Romney-Ryan position on health care is that many millions of Americans must be denied health insurance, and millions more deprived of the security Medicare now provides, in order to save money. At the same time, of course, Mr. Romney and Mr. Ryan are proposing trillions of dollars in tax cuts for the wealthy. So a literal description of their plan is that they want to expose many Americans to financial insecurity, and let some of them die, so that a handful of already wealthy people can have a higher after-tax income.

I had no idea that the reason that some people believe that capital gains taxes should not be as high as Krugman and Barack Obama demand is because they want people to die. The explanation I always heard was that high capital gains taxes limit capital investment, but since capital is irrelevant to a Keynesian (except for its promotion of short-term spending), I guess Krugman's answer makes sense. Yes, anyone who thinks that we should not be putting tax barriers in the way of capital formation believes so because he or she wants people to be without healthcare in their most dire moments.

Friday, October 12, 2012

A while back, Paul Krugman mocked the Austrian Business Cycle Theory (ABCT -- or ATBC), claiming it was akin to the "phlogiston theory of fire." Why would he use such terms? Because the ABCT is based on the view that government economic intervention -- and especially aggressive monetary intervention -- creates malinvestments that cannot be sustained, and every good Keynesian knows that the real problem is "aggregate demand."

Thus, to get an economy quickly back on track after a bout of poor aggregate demand, all that is needed is for a government to engage in aggressive spending, borrowing, creating inflation (when the economy is in a "liquidity trap"), and creating vast subsidies in order to ramp up more spending. Krugman has emphasized these points time and again the past four years, and they are part-and-parcel to Keynesian doctrines.

Yet, in his most recent column, Krugman tries to claim that a financial crisis is "different" from other business cycle downturns because it takes longer for the economy to recover. Yet, to me, this brings up a number of questions that seem to contradict his Holy Keynesian Faith. He writes:

... President Obama’s people failed to appreciate something that is now common wisdom among economic analysts: severe financial crises inflict sustained economic damage, and it takes a long time to recover. (emphasis mine)

The simply question I ask is: Why? For that matter, given the Keynesian view that for analytical purposes factors of production are homogeneous, why should a housing bubble be a bad thing? (Oh, I forgot, the Federal Reserve System is trying to reflate the housing market and Krugman approves. That's called creating another bubble.)

If a housing bubble, or any other financial bubble, puts prices out kilter with fundamentals, why is that a problem given that Keynesian doctrine treats an economy simply as two curves, an aggregate demand curve and an aggregate supply curve? No matter what the government does as long as it encourages more demand is just fine.

Does Krugman believe this? No, or at least if he recognizes financial bubbles, then he also recognizes malinvestments, even if he claims otherwise. However, in looking at his infamous "Hangover Theory" article, there is a contradiction that Krugman never has tried to erase. He writes:

...let's ask a seemingly silly question: Why should the ups and downs of investment demand lead to ups and downs in the economy as a whole?

However, during both the Tech Bubble and the Housing Bubble, unemployment rates did go down and we had a general economic boom. (The Clintonistas claimed that they had created a "New Economy" by raising the top tax rate to 39.6 percent.) The booms were the trigger mechanism for much of the creation of new money and were central points of spending. Furthermore, the U.S. dollar was considered to be the world's "reserve currency," so when people were able to hold more dollars, the rest of the world was glad to accept them.

Even Krugman would acknowledge that point, but he has no intellectual theory to explain why it is that a housing bust and financial crisis should then result in long-term economic damage complete with high unemployment. His criticism of the ABCT could just as well be criticism of his own Keynesians beliefs:

The hangover theory, then, turns out to be intellectually incoherent;
nobody has managed to explain why bad investments in the past require
the unemployment of good workers in the present.

We could say the same thing about Keynesian Theory and Krugman's earlier point about financial collapses. If government simply takes over all lending and spends and spends and spends, then why should there be any residual problems at all? In fact, the government has done all of these things, yet the underlying economy is very weak. Krugman can try to play the political operative and spin the current mess as a huge success for the Obama administration, but he has not explained how a financial bubble (1) could help create a boom and (2) how a bursting of the bubble would cause damage given that government can fix things with spending.

Furthermore, if prices really don't matter (except aggregates put into an index), how would we know in the first place that a bubble had occurred? So what if housing prices are high; if the relationship of the prices don't really matter, then who is to say that housing is out-of-kilter? No doubt, these statements will enrage a Keynesian True Believer, but Keynesians -- including Krugman -- are not free to claim that prices matter when they want them to matter and that prices don't matter when Keynesians claim they don't.

Monday, October 8, 2012

When Paul Krugman was awarded the Nobel Prize in economics four years ago, Donald Luskin wrote tongue-in-cheek that the committee from the Swedish central bank had given the honor to what essentially was a "dead economist." Luskin's point was that Krugman a decade before had traded in his economist's hat for the headgear of a political operative, and today's column is a case-in-point.

Last week the U.S. Department of Labor announced that the nation's unemployment rate had fallen to 7.8 percent, and the same Paul Krugman who would excoriate the George W. Bush administration (which, truthfully, deserved to be excoriated) when unemployment was under six percent, now is undeniably giddy over the data:

On the employer side, the current numbers say that over the past year the economy added 150,000 jobs a month, and revisions will probably push that number up significantly. That’s well above the 90,000 or so added jobs per month that we need to keep up with population.

He goes on to claim that had Goldstein, er, the "scorched-earth Republicans," not sabotaged the whole recovery, we might be near-swimming in prosperity. Krugman declares:

...that’s the truth that the right can’t handle. The furor over Friday’s report revealed a political movement that is rooting for American failure, so obsessed with taking down Mr. Obama that good news for the nation’s long-suffering workers drives its members into a blind rage. It also revealed a movement that lives in an intellectual bubble, dealing with uncomfortable reality — whether that reality involves polls or economic data — not just by denying the facts, but by spinning wild conspiracy theories.

It is, quite simply, frightening to think that a movement this deranged wields so much political power.

So, there you have it. If you are not convinced that Operation Twist, QE Forever, massive subsidies to windmills and corn-based ethanol, inflation, and make-work schemes have not put us on the road to prosperity, then you not only are "deranged," but you are in league with Goldstein.

Let me put it another way: Does anyone think that if a Republican (Goldstein) were in office and unemployment was over 8 percent all during the person's time in office and the rate fell to 7.8 percent a month before the election, that Krugman would be claiming that the True Recovery had arrived? No, I didn't think so.

Friday, October 5, 2012

For all of the talk from Keynesians that their goal is to help the private economy "gain traction," Keynesianism ultimately is about central government planning, be it monetary planning, government spending, or regulatory mandates. The ultimate mantra of the Keynesian is this: Statism equals prosperity.

Thus it is that in the wake of the Obama debate debacle, Paul Krugman has decided to go to war...over dueling medical plans, and his argument is this: Obama has a better "plan" than does Romney, and if Romney says otherwise, he is lying. One has to understand that what Krugman is arguing is that these plans are going to perform exactly as they are written, and that requires a huge stretch of the imagination.

When one peels away the rhetoric about the dueling "plans," one finds that the central assumption is that government central planning works. In Wonderland, we are supposed to believe that the Obama plan actually will result in expanded coverage at lower costs? Why? Because Obama says so. With the Romney plan, things will not turn out well? Why? Because Krugman says so.

Never before in economic history has government planning done what Krugman claims ObamaCare will do: create more need-fulfilling services while simultaneously using fewer per capita resources. That is the heart of the debate, not which candidate has the better central plan.

Krugman can throw out all of the ex ante projections he wants, but the point is that by expanding the regulatory and confiscatory state, and employing an army of bureaucrats to see that all of the jillions of rules are followed to the letter, ObamaCare -- or RomneyCare II, for that matter -- ultimately will result in higher real costs of medical care. And as people find that the heart of ObamaCare's "cost-cutting" measures really means denial of medical choices for those who are not politically-connected, the ensuing "crisis" will bring demands for even more government control.

The regulatory state is quite predictable in its outcomes, yet people continually go to the same dry well because that is what the Progressives who essentially control all of our major institutions claim will "solve" the latest set of problems. Whether the OC or RC plans are implemented, in the end we will find that central planning from Washington will mean deterioration of medical services.

As I see it, the real issue is not the red herring of whether Mitt Romney told the Truth According to Paul Krugman. No, the real issue is that Washington is embarking on a journey that will have outcomes that are much different -- and much worse -- than what is being promised. Paul Krugman is politically-connected and he is wealthy; he won't have to worry about being denied care.

But those people who are not in Krugman's privileged category are going to find that not only will the government actively restrict their medical care, it will do it in an iron-fisted way. Central planning is central planning, and all of the rhetoric in the world cannot change that hard and sad fact.

Thursday, October 4, 2012

In a blog post following the first presidential debate, Paul Krugman insisted that while Obama did rather poorly, he spoke only the truth while Mitt Romney spoke only lies. Given that I cannot imagine the president or his main challenger telling the truth, I would say that Krugman was guilty of speaking only half a lie, but nonetheless, by insisting that Obama tells only the truth, that half was a whopper.

Krugman, being the political operative that he is, insisted in his latest column that the economy is not in any kind of crisis. In a recent speech in Europe, however, Krugman told a different story, warning of impending collapses if Europe continues its present course of what Krugman calls "austerity." What I find most interesting about his speech, however, is his insistence that the European Central Bank engage in what would be nothing more than a pure print-the-euro scheme, as though the "Zimbabwe Solution" would be sustainable. He declared that Europe must

...contain immediately the financial threat to troubled countries and stabilize yields on their borrowing, which in the end requires the ECB to be ready to be the lender of last resort and buy sovereign bonds.

Understand what he is saying. In effect, he is recommending that the European authorities create what would be an inflation crisis -- and that is what pure money printing schemes like this always create -- in order to solve the fiscal crisis. So, I guess that if Europeans are drowning in euros, they will forget that their economies are grinding to a halt. The Krugman "solution," or what we call the "Inflation Fairy."

Monday, October 1, 2012

Yes, yes, Paul Krugman's latest column is a stirring defense of the Welfare State, which in Wonderland is permanently sustainable because interest rates are low. And why are interest rates low? I think his former department chair, Ben Bernanke, might have something to do with that, but low rates certainly are not due to any increase in savings or positive long-term outlooks by investors.

Krugman writes:

...we are not facing any kind of fiscal crisis. Indeed, U.S. borrowing
costs are at historic lows, with investors actually willing to pay the
government for the privilege of owning inflation-protected bonds. So
reducing the budget deficit just isn’t the top priority for America at
the moment; creating jobs is. For now, the administration’s political
capital should be devoted to passing something like last year’s American
Jobs Act and providing effective mortgage debt relief.

Actually, an economy normally creates employment opportunities by creating new wealth, not printing money, but in Wonderland, the printing press is the real source of wealth and the more the Obama administration through Bernanke prints (and that essentially is what the guy is doing), the wealthier we are!

How do economies grow? Before the creation of Wonderland, they grew when entrepreneurs found ways to combine resources and factors of production in way that would enable them to move these factors and resources from lower-valued to higher-valued uses, as ultimately decided by people who purchased consumption goods. Over time, entrepreneurs found newer and better ways to apply these resources in a way in which we were able to produce more with less.

Even economists at one time believed that. Today, we have Nobel Prize-winning economists claim that economies grow via government spending, through vast subsidies given to industries run by people who are politically-connected to whomever is in power, and by keeping entrepreneurs from producing more wealth.

In Wonderland, "costs" simply are official price-denominated outlays that can be raised or lowered simply via government edict. As the Federal Reserve System quietly props up more banks and governments, we are told that Bernanke actually is creating a miracle world in which the Law of Opportunity Cost is repealed.

Once upon a time, Washington would have been exposed for the parasitic economy it has become, but now that we are in the Age of Wonderland led by Really Smart People, Washington's new riches are seen as progress. Socialism comes to a grinding halt when, in Margaret Thatchers words, the socialists run out of other people's money to spend, but I guess we are not quite there yet.

You see, Krugman actually seems to believe that the "Social Safety Net" actually is a net creator, not a net consumer of wealth. It is economics turned upside down, but for the time being, the folks who believe we create new wealth by taxation, printing money, borrowing at record rates, restricting entrepreneurs, and promoting inflation have the microphone and they are not giving it up.

About Me

I teach economics at Frostburg State University in Frostburg, Maryland. We are located on the Allegheny Plateau, and we have cool summers and tough winters.
I am the single father of five children, four of them adopted from overseas and I have two grandchildren. My family and I are members of Faith Presbyterian Church (PCA).